GuideMe Hong Kong

Hong Kong has once again one-upped arch rival Singapore in Forbes’ Best Countries for Business (BCB) 2011. This time, the city made it to the third place while its Southeast Asian nemesis came in the sixth place. The BCB survey rates 134 countries based on 11 factors including freedom (trade, personal and monetary), property rights, innovation, technology, red tape, investor protection, corruption, tax burden and stock market performance. Forbes referred to research conducted by Transparency International, Heritage Foundation, the World Bank and World Economic Forum, among others, to arrive at the rankings.

So how did Hong Kong manage to rank so positively in this survey?

1) Low tax burden
According to the survey, Hong Kong has the second lowest tax burden in the world. Singapore comes a close third. Interestingly, the top two countries in the survey do not rank as well as Hong Kong or Singapore when it comes to tax burden. Canada, which topped the overall BCB list, was ranked #9 for tax burden while New Zealand, at number two, ranked #21 for tax burden. Countries that are not doing well in the current economy coincidentally were ranked as economies with higher tax burdens. The US ranked #45 in the BCB list while France, Austria and Japan ranked #40, #72 and #79 respectively.

Analysis by GuideMeHongKong.com shows that economies with lower tax burden tend to fare better than those with higher tax burden. Hong Kong taxation is one of the lowest in the world. As discussed in our blog on Hong Kong economic freedom, many entrepreneurs, investors and professionals are more inclined to operate in economies like Hong Kong and Singapore because of its low corporate and income tax requirements. The absence of dividends and capital gains taxation are also a boon to shareholders.

2) High monetary and trade freedom, low red tape and corruption
In terms of monetary freedom, Hong Kong was ranked #3. Singapore trailed close behind at #4. Singapore trumped Hong Kong for the least corruption and red tape though, scoring #1 and #4 in each category respectively. Hong Kong, on the other hand, was ranked #13 for corruption and #6 for red tape. Both Singapore and Hong Kong shared the #1 ranking for trade freedom. Since 1989, Hong Kong’s has consistently been strong, averaging 3.8% in GDP growth. Following the financial crisis of 2008, Hong Kong’s GDP took a dip in 2009 before rebounding by 6.8% in 2010.

3) High investor protection
Hong Kong has been ranked #3 on the BCB list for investor protection. This is another area where Singapore supercedes the city (#2). According to the World Bank Doing Business Report, three elements account for the investor protection ranking i.e. the extent of disclosure, the extent of director liability and ease of shareholder suits. Both economies ratcheted the same scores on extent of disclosure and ease of shareholder suits. However, Singapore’s higher ranking is attributed to its higher score on director liability index. Nonetheless, both economies have some of the best procedures in place to safeguard investor interests.

Recently, Chief Executive Donald Tsang has announced a a commitment to economic growth via a $1 billion funding that will go into developing Hong Kong into a creative hub. The funding aims to help companies apply design to move up the value chain and become memorable brands. This news comes on the back of a $30 million  annual funding to the Hong Kong arts scene earlier this year. Plans are also on the way to establish 2012 as Hong Kong Design Year and a Hong Kong Economic, Trade & Cultural Office in Taiwan as well as to allocate more resources to Hong Kong Design Center.

So what does this mean for businesses or anyone considering Hong Kong incorporation? The sluggish economy means that slower growth is inevitably in the cards for Asia as well. However, this prospect should not deter entrepreneurs or investors who would like to make Hong Kong their base. Asia is still the place to be and while growth will be modest, the bottom line is that the prospect is still possible here. As the mouth into a vast Chinese market and as an active ally to economies in the region, Hong Kong will continue to attract investors and talent with regional opportunities.

If you are interested in doing business in Hong Kong, learn more about our Hong Kong company registration services.

If you still aren’t sure about whether to incorporate in Singapore or Hong Kong, learn more in our Choosing Between Singapore and Hong Kong report.